Deck 15: Fraud and Sox Compliance

Question 1

Section 302 also charges the CEO and CFO with:

A) Designing an internal control system so that they become aware of all information relevant to the reports.
B) Designing a financial statement system that exceeds GAAP.
C) Establishing a repository of comparative ratio analysis against their main competition.
D) Forming an ad-hoc committee to review the quarterly and annual financial statements prior to submission to the SEC.

Answer 1

A

Question 2

Section 301 requires compliance with its provisions as a precondition to companies being publicly traded. Companies not in compliance with Section 301 can be:

A) Charged in Federal District Court with a civil violation.
B) Placed on probation, or be delisted, by the SEC.
C) Audited by the IRS.
D) There is no penalty for non-compliance with Section 301.

Answer 2

B

Question 3

Under SOX Title XI, what is the SEC empowered to do?

A) Use the assets of the corporation it is investigating to pay for the on-going investigation.
B) Lobby congress for specific laws to enable them to make gray areas they are investigating illegal for quicker conviction rates.
C) Petition federal courts for temporary injunctions to freeze pending "extraordinary payments" to certain individuals under investigation for possible violations of Federal securities law.
D) All of the above.

Answer 3

C

Question 4

Are personal loans allowed to directors and executives?

A) Yes, if they are under $1 million.
B) Yes, if reported in the next quarterly filing to the SEC.
C) Yes.
D) No.

Question 5

Who administers the SEC?

A) 5 appointed officials from the IRS.
B) 5 presidentially-appointed commissioners who serve staggered 5-year terms.
C) The justices of the 11 Federal Circuit Courts.
D) The board of directors from both the Dow Jones and NASDAQ markets.

Question 6

Under Title IV, what is the change in the reporting days for senior management and directors when they have a change in securities ownership?

A) From 2 to 10 days.
B) From 10 to 2 days.
C) From 10 to 15 days.
D) From 15 to 10 days.

Question 7

Which of the following does Section 201 of Title II allow an auditing firm to perform for their client?

A) Bookkeeping or other services related to the accounting records or financial statements of the audit client.
B) Broker or dealer, investment adviser, or investment banking services.
C) Services (such as those relating to tax returns) not listed above to be provided contemporaneously with audits.
D) Actuarial services.

Question 8

Under Section 302, the CEO and CFO must file separate reports that certify:

A) The signing officer has reviewed the report.
B) The report does not contain any untrue statement of a material fact.
C) The financial statements fairly present in all material respects the financial condition and results of operations of the year.
D) All of the above.

Question 9

Which president said in reference to SOX: "your integrity will be recognized and rewarded, because the shadow of suspicion will be lifted from good companies that respect the rules."?

A) President Clinton.
B) President Bush.
C) President Carter.
D) President Ford.

Question 10

Which title of the SOX has an objective of requiring auditors to report certain information to their clients' audit committees?

A) Title II.
B) Title VI.
C) Title VII.
D) Title IX.

Question 11

In regards to the accounting industry, what are the most important areas that the SEC Chief Accountant deals with?

A) The FASB.
B) The IASb.
C) The AICPA.
D) All of the above.

Question 12

The SOX grew out of which of the following situations?

A) FASB Statements being too overbearing.
B) GAAP becoming outdated.
C) The SEC and accounting professionals agreeing to more restrictive rules after each major accounting scandal.
D) Citizens forcing Congress to make more laws regulating the accounting industry.

Question 13

What is the major change to restitution under Section 308-Fair funds for investors?

A) Investors are guaranteed full restitution of any losses from the date of their purchase of the corporations securities.
B) The U.S. Treasury cow pay restitution to investors.
C) The corporation will now pay all civil penalties to its investors.
D) The CEO and CFO's personal assets can be liquidated to pay restitution to investors.

Question 14

What is one of the restrictions on Public Company Accounting Oversight Board (PCAOB)?

A) The Chairmen must be a practicing CPa.
B) Only two members are allowed to be, or have been a CPA.
C) Each member must be on the board of directors of a major corporation.
D) All board members must put their investment holdings into a blind trust account while serving on the PCAOB.

Question 15

Crimes covered under SOX have penalties that are raised from 5 to 20 years in prison. What types of crimes are these called?

A) Blue Collar.
B) White Collar.
C) Racateering.
D) Associative.

Question 16

What does Section 206 of Title II prevent a public-accounting firm from doing?

A) Auditing a client if the CEO, chief accountant, or chief financial officer of the client worked for the public accounting firm and participated in auditing if that client in the previous 12 months from the beginning of the audit.
B) Hiring the CEO, chief accountant, or chief financial officer if the client worked for the public accounting firm and participated in auditing of that client in the 12 months after the beginning of the audit.
C) Having direct telephonic or E-mail communications with the CEO, chief accountant, or chief financial officer if the client worked for the public accounting firm and participated in auditing of that client in the previous 12 months from the beginning of the audit.
D) Publishing their findings in the audit to the SEC for public inspection by other corporations.

Question 17

To whom do the rules within SOX apply to?

A) Corporations.
B) Partnerships with more than 10 partners.
C) Any Corporation required to file a 10-K with the SEc.
D) All of the above.

Question 18

Title VIII--Corporate and Criminal Fraud Accountability sets forth penalties for senior managers and directors if they knowingly defraud shareholders of publicly traded companies; what is the prison term?

A) 5 years.
B) 10 years.
C) 15 years.
D) 25 years.

Question 19

Which of the following is not a concern of Title V, Analyst Conflicts Of Interest?

A) Prevents securities research analysts from being supervised by persons who are involved in investment banking activities.
B) Limits the investment bankers' ability to pre-approve research reports.
C) Limits the number of hours an analyst can spend on any one evaluation
D) Protects research analysts who write negative reports from retaliation by their employers.

Question 20

If a corporation must restate its financial statements due to miss-conduct, what must the CEO and CFO do?

A) Remove themselves from their positions within the corporation.
B) Form an internal control review committee.
C) Issue a stock-bonus to all shareholders.
D) Disgorge themselves of any profits from the sale of the company's securities, bonuses, or general incentive compensation.

Question 21

The enterprise risk management report defines 16 overlapping components.

Question 22

ISO 27002 has a specific topic of Asset Management. Which of the following is considered an Asset that needs to be safeguarded within a corporation?

A) Vehicles.
B) Office Furniture.
C) Information.
D) All of the above.

Question 23

One of the mandated standards within Title I of SOX is that auditors must retain their working papers for a minimum of five years.

Question 24

The United States Sentencing Commission relieved judges of all guidelines for sentencing corporations because of the Savings and Loan failures of the 1980's.

Question 25

In regards to SOX and COSO; ISO 27002 and COBIT, what do the do for each other?

A) Conflict each other on many topics.
B) Compliment each other on many topics.
C) Cover areas that the other is weak upon.
D) Make each other obsolete.

Question 26

What does ISO 27002 focus on?

A) Financial security.
B) Fraud prevention.
C) Internal control development.
D) Information security.

Question 27

According to COSO's second report, "Internal Control - Integrated Framework", what is the definition of internal control?

A) A specific set of internal standards that when subordinate managers hold their workers up to will make the corporation run more efficiently.
B) A SEC based initiative that is inspected and signed by the CEO and CFO.
C) Five Elements that are written into corporate language and part of the employee handbook.
D) A process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives.

Question 28

Which of the following is one of the most dangerous implications of SOX?

A) That the CEO and CFO must sign quarterly and annual reports.
B) That the SEC has the power to influence the senior management of corporations.
C) That rules set forth in SOX lesson the internal control environment of all corporations.
D) That the senior management and board of directors can be held liable for subordinates fraudulent actions.

Question 29

Which of the following is not one of the additional compliance guidelines?

A) Establishing a compliant corporate culture, beginning with top-level employees.
B) Establishing and maintaining effective whistleblower programs.
C) Conducting ongoing risk assessments to identify and prevent potential problems.
D) Coordination with industry analysts to ensure they have proper data.

Question 30

What does good enterprise risk management do?

A) Helps management achieve its objectives relating to financial reporting objectives and legal compliance.
B) Helps the SEC identify high fraud potential organizations.
C) Eliminates risk to investors by forcing corporations to maintain a fraud liability sinking fund.
D) Assists industry analysts with a risk management reports.

Question 31

SOX released auditors from the requirement of to reporting to the audit committee all material written communications between the audit firm and the client.

Question 32

According to the Sentencing Reform Act of 1984, how are judges to determine the sentence for the guilty?

A) On a point system.
B) Based upon the monetary damaged caused to investors.
C) Based upon previous cases sentences.
D) A panel of 3 judges decide the sentences.

Question 33

Title X of SOX states that the CEO must sign the corporate tax return.

Question 34

The SEC created ISO 27002 to assist corporations with enhancing their Internal Control Standards.

Question 35

The SEC has the power to make and enforce rules under SOX.

Question 36

The United States Sentencing Commission bases its guidelines for sentencing upon the Guidelines Manual.

Question 37

Which of the following is not an element of enterprise risk management?

A) The Internal Environment.
B) Risk Assessment.
C) Risk Avoidance.
D) Risk Response.

Question 38

Crimes committed by executives of corporations are often referred to as Blue Collar Crimes.

Question 39

COSO is a private, independent group that is sponsored by some of the very top private-sector accounting organizations, including the American Institute of Public Accountants, The American Accounting Association, and the Financial Executive International.

Question 40

The 1987 Report of the National Commission on Fraudulent Financial Reports major overtone was:

A) To urge subordinate workers to blow the whistle on corrupt acts within their corporations.
B) The implementation of harsher sentences upon guilty corporations.
C) Establishing the right tone at the top (the corporate culture, including an ethics code).
D) Increasing the SEC's power.

Question 41

What are some of the enhanced financial disclosures under Section IV of SOX?

Question 42

Explain the 4 domains of the Control Objectives found within the Control Objectives for Information and related Technology (COBIT).

Question 43

Of all the SEC offices, which is the most important to the accounting industry and why?

Question 44

Describe the composition of the Security and Exchange Commission.

Question 45

If you were a research analyst, what did SOX do to change your job?

Question 46

What are some of the benefits of SOX according to President Bush?

Question 47

What does ISO 27002 focuses on?

Question 48

Describe the parameters set forth in Section 203 of SOX in regards to the Rotation of Auditing Partners.

Question 49

SOX dramatically increased sentences for violators of the law. Discuss some of these penalties.

Question 50

Explain some of the increased corporate responsibilities indicated in SOX.